Whole Life Insurance or Universal Life Insurance for Newborn Child?


#1

Hey everybody.
We just had our 2nd child born and I have a question about life insurance.

We have a $15,000 universal life insurance policy for $15/month for our first child. I am planning to get a life insurance policy for our 2nd child.

My question is what does the Rockstar community do for their children (i.e. term, whole, universal, nothing).

I haven’t received any quotes yet for a whole or universal policy, but I plan on getting the same coverage amount (just enough to cover a basic funeral & burial).

Thanks!


#2

Our term life insurance (via USAA) policy adds for free 10k coverage per child, IIRC. They asked one day on the phone if I wanted that and said “sure”. Could pay a bit more for more coverage.


#3

Congratulations on the birth of your second child!

Our term policy has a free rider for our kids, same as @SFF. I did it because it is free, but in general, I think life insurance for kids is kind of a scam. I wrote a post about it (specifically whole life) about a month ago


#4

I don’t get the idea of having life insurance on your kids. Kids don’t need life insurance, they don’t have any liabilities. They can get life insurance when they’re young adults.


#5

One reason to at least take advantage of the free riders is that funerals cost a lot. And there could be medical bills that aren’t covered by med insurance as well. We figure the 10k should at least cover funeral expenses, if nothing else. Average funeral expenses w/ burial is ~ 7-10k. (cremation is less)


#6

I didn’t know that about USAA. I have them for car insurance & looked at their life insurance but got a slightly better rate with our homeowner’s insurance company for a term policy(for me) when our first daughter was born. (USAA wouldn’t insure our house because we a home-based business that didn’t meet their criteria).


#7

I will need to read this article. While we fully expect our children to reach adulthood, we don’t have the money set aside for a funeral. We would have to sell off some investments, so we could afford it if we have too.


#8

Do you have an emergency fund? I feel like that would cover a majority of any funeral expenses. I did some research when I wrote that piece and found that while children’s funerals can be very expensive, they are usually less than adult ones and most funeral homes will do everything at cost if it is the sudden passing of a child.

Also, I saw you have term insurance. I would ask about the child’s rider, a lot of policies have them or have a children’s term add on for very cheap if you feel you need it


#9

agreed. No need for life insurance for kids.


#10

Agree with @MamaFishSaves and @Dads_Dollars_Debts - typically you don’t want life insurance for a child, unless it’s a rider where you’re getting it free or nearly free, Life insurance is supposed to insure against the sudden passing of a contributing member of the household - e.g., mom and/or dad. Not kids. I have three kids and I don’t carry life insurance on them. If, God forbid, something did happen I would use my emergency fund to pay for a funeral.


#11

^^^What @ChiefMomOfficer says^^^


#12

Also to be frank @MoneyBuffalo if one of my kids was to pass away, I really don’t care if I have to sell investments to pay for a funeral. This is coming from someone who at 31, had to think seriously about how I was going to pay for a funeral for my husband if he were to die of the septic shock that had him on a ventilator.

I probably would have had to sell investments, but I really didn’t care.


#13

I think most of us would recommend against whole life.
If you don’t have term, you could look into it and see if it can come with a rider for your children.
I also wrote an article about whether or not your kids need insurance. I hope it helps.


#14

Yes, this is what I was going to say. @Tawcan - normally I would agree with you but funeral costs are out of control and the emotion that goes with losing a child is unbearable (I can only imagine). Going in to debt at the same time would be an additional reminder of that tragedy for years to come while paying off said debt.

@MoneyBuffalo - to answer your question, term, term, term. Always. For everyone. If you have whole do not cancel until you get a term policy in place then surrender that shit asap. I used to work for an insurance company. :wink: EDIT - And $15 a month is very high for 15k worth of insurance. I had 200k for the same amount in term and I was 30 when I got it. Get out of the universal and into term. :slight_smile:


#15

True - assuming you have an emergency fund. After going through what you went through with your husband you of anyone knows you cant ever bee too prepared! That being said, living in fear is no way to live either. While I would normally think no to a kids insurance, the rates are insanely cheap and add peace of mind. I watched a friend of ours go through the loss of a child AND his wife during the birth. To say he was not in the right frame of mind to make financial decisions is an understatement. Thankfully they had taken out an insurance policy on her 2 months prior…2 months!! He had to leave work to care for his other job and take the time he needed to get back on his feet emotionally. Now, while the baby didn’t have insurance (nor in this case dd it matter since the mom had plenty), having seen the aftermath I would definitely carry a policy for a child. Selling investments makes sense if you have them…unfortunately, so many people don’t. 5-10k is a hefty chunk of change! Once you have that plump investment fund I would agree with you hands down.


#16

I’d defintely sell everything if it was for my children, wife, or myself too. We have an emergency fund & can afford the costs if the unthinkable does happen.


#17

Thanks @MissMazuma (along with everybody on the list) we have term policies for my wife & I and going to see if we can add the rider for both our children (if it’s cost-effective). And, either putting the price of the policy in a savings account or investment account.

We have just had the policy for our oldest for a year, so I can get about 50% of the value back ($75) and not be out too much. Now that we know $15/month isn’t a good price for a whole policy.

My wife & I had a great conversation after everybody’s input. We are in the financial position to afford the unfortunate and we don’t want to feed the insurance industry as much as possible. Besides our current home mortgage, we may more in insurance (health, self-employment, life, homeowner’s, auto) is more than the rest of our budget catergories combines. Having two less life insurance policies can reduce that amount a little bit.


#18

Thanks for posting an update! I like to see how things turn out. :slight_smile: With this added information your wife and you seem to be in a stable enough position to go it on your own. Thinking ahead is key to addressing these things - thanks for letting us be a part of the process!!


#19

It is really wise to think about the future of children and the need of insurance.


#20

Devils advocate here. My cousin had a child at 17 and I had mine at 42. We’re the same age. She purchased whole life. Her son is over 30 now and his whole life Insurance premiums total will be less than my current term total once he hits my age even after accounting for all the years as a child and the fact that I didn’t start paying till I was 28. Dunno if that’s unusual or not.

What makes their act of purchasing the ins so unique is at 2 yo his lungs were damaged due to pneumonia. He doesn’t qualify for cheap term ins even tho he doesn’t smoke (he can’t) and he’s young. Such cheap ins has been a blessing as there is no way he could have otherwise afforded term ins.

I agree for most people term is best. We have a free child rider on my term policy.

but add the expected cost of the ins over the child’s entire life to determine the break even point with term ins. Then see which is best.

If you’re in a position where you can pay cash for a funeral then maybe you’re in a position to help your child out by paying for whole life/Universal now so they can lock in a really low rate. You could set aside $4800 and pay for a $10 a month premium for 40 years with that amount. Now it’s been a while so I’m sure rates have gone up but the premise is the same.

I’m not an expert but if you prepay the ins when they are a child I don’t think the amount is counted in the gift tax amount. So for wealth distribution this is an excellent way to distribute funds above the $14k a year and also to give yourself peace of mind your future grandkids/ DIL or SILwill be taken care of. (Not every young couple with kids has the money to get life ins or if they do it’s easy to be lazy about it because the young always think nothing will happen to them.)